Bad start for China growth?

Spending and production have sagged in the first two months, but CIMB thinks GDP will still overshoot.

The brokerage firm raised its 2012 GDP forecast to 8.7% from 8% due to the likely monetary and fiscal support from the Chinese central bank.

But risks abound. Volatile energy costs can curtail efforts to spur economic expansion.

Here's more from CIMB:

While Jan-Feb data for consumer spending and industrial output are weaker than expected, they still signal a steady start to the year, and are certainly within policy makers’ comfort zone. We are raising our 1Q12 GDP growth forecast from 7.7% to 8.5% and 2012 forecast to 8.7% from 8%.

Not too hot, not too cold. Due partly to a high year-ago base and the slower growth of heavy industries, industrial output (IPI) expanded at a lower-than-expected 11.4% yoy over Jan-Feb (Jan-Feb 11: 14.1%, 4Q11: 12.8%), below consensus and our forecasts of 12.3% and 13% respectively. Fixed asset investment grew at a stronger-than-expected 21.5% over the same period (Jan-Feb 11: 24.9%). Retail sales, meanwhile, rose 14.7% yoy, trailing consensus and our estimates of 17.6% and 18% (Jan-Feb 11: 15.8%). Stronger sales of tech gadgets, cosmetics, jewelry and furniture were offset by sharply weaker sales of household appliances and sports/recreational items.

1Q12 GDP likely to expand between 8.3-8.5%. The moderation in industrial output and retail sales is to be expected due to the lagged effects of credit tightening, weaker external demand and higher year-ago bases. Although both have fallen short of estimates, they still point to 1Q12 GDP growth of 8.3-8.5% (1Q11: 9.7%, 4Q11: 8.9%). This is stronger than our previous assumption of 7.7% (consensus: 8%).

2012 GDP growth raised to 8.7% from 8% previously. While a spike in energy costs might still upset the apple cart, we expect PBoC’s monetary and fiscal accommodation to support 2012 GDP growth, of 8.5% in 1H12 and 8.8% in 2H12. As such, we are raising our 2012 GDP growth forecast from 8% to 8.7% for the year. The Chinese premier may have professed a 7.5% growth target but we don’t see this as a likely outcome. In the past four years when the government targeted 8% GDP growth, the economy actually expanded by about 10%. The slight lowering of its growth target this year is more a signal that
“basically stable” macroeconomic policies will be maintained, to guarantee the steady growth of the economy and social stability.